Convert Partnership LLC to Single Member LLC

[Goro7731]

On Dec 31, 2022 my partner gifted me their share of his partnership interest, thus I want to now convert our formerly Partnership LLC into a single member LLC (disregarded entity).

According to the answer here , I am suppose to mark my Federal Partnership Return as FINAL; however, there are no instructions for the STATE (California) return.

How do I handle this in Turbo Tax Business?  Do I also mark the state return (FORM 568) as FINAL, or do I pay the Franchise Fee $800 and file a LLC-1a form to process the conversion?

Thank You So much!

[PatriciaV]

Yes, because your company was still a partnership at the end of 2022, file a final California Partnership return Form 565 this year. To do this, during the California state interview in TurboTax Business, on the page "About Your Business," check the box for "Is filing its final California return." Because you were in business during 2022, you will need to pay the Franchise Fee for the year.

You should also file the Conversion request (which you can do online) to report the change in ownership. Next year, you will file California Form 568 as a single-member LLC (read more here: California Single-member LLC). TurboTax will prepare this form for you when you include the business on Schedule C of your personal 1040 tax return.

[Goro7731]

@PatriciaV 

Sorry if I was not clear, but I currently file a Form 568 every year with California because we have a Partnership LLC.  We do not have a regular partnership (which would require a Form 565).  On Dec 31, 2022 my partner gifted his ownership to me and now I want to move forward as a single-member LLC.

A) Is your answer still correct in this situation?  In TurboTax Business 2022, for the State of CA, do I file the 2022 return as FINAL and then submit a Conversion Request?

B) Also, marking my 2022 state return as final does not allow me to put an amount in Form 3536 (Estimated Fees for LLCs), so how would I pay the estimated fees for my converted single-member LLC?

[PatriciaV · Accepted solution]

Yes, because you had a change from an LLC (2022) to an SMLLC (2023), file a final return for the LLC this year. You should be able to pay estimated fees online, so you wouldn't need the form from TurboTax. And remember, next year you won't need TurboTax Business.